As a result of COVID19, unemployment rates rival those of the Great Depression. People are suffering from financial setbacks at no fault of their own. Financial problems also stem from the loss of employment, individual or family medical issues, divorce, excessive student loan debt, foreclosure, back taxes or a failing business. If you are struggling to pay your bills, deciding to file bankruptcy is a big decision. Bankruptcy permits consumers and businesses to eliminate their debts and repay their creditors in an orderly manner. Navigating the process can be complex but an experienced bankruptcy attorney can help. We will review your situation and create a workable solution.
Chapter 7 bankruptcy exists to give consumers a “fresh start” so that they can begin to rebuilt their lives and credit. In a Chapter 7 bankruptcy case, you disclose all of your assets, debts, income and expenses to the Bankruptcy Court. The Bankruptcy Court applies certain exemptions to your assets. If you have assets over and above the allowed exemptions, those are turned over to the appointed Chapter 7 Trustee. The Trustee then liquidates the assets to pay unsecured creditors on a pro rata basis. At the end of the Bankruptcy Case, the Bankruptcy Court issues an order of discharge and you are no longer liable for the unsecured and now discharged debts.
To qualify for a Chapter 7 bankruptcy, you must earn less than the state median income on a monthly basis and submit to a “means test” that examines your financial records, including income and expenses, along with secured (mortgage and car loans) and unsecured debt (credit card bills, personal loans, medical expenses). Keep in mind that you cannot file any bankruptcy case, if during the preceding 180 days a prior bankruptcy petition was dismissed due to your willful failure to appear before the Bankruptcy Court or comply with orders of the Bankruptcy Court, or if you voluntarily dismissed the previous case after creditors sought relief from the Bankruptcy Court to recover property upon which they hold liens.
In order to even file your Bankruptcy Petition, you must complete a credit counseling course from an approved credit counseling agency either in an individual or group briefing. We can assist you with finding an agency that meets this counseling requirement.
One of the primary purposes of bankruptcy is to discharge certain debts to give an honest individual person a “fresh start.” You have no liability for discharged debts. In a Chapter 7 case, however, a discharge is only available to individual debtors, not to partnerships or corporations. Although an individual Chapter 7 case usually results in a discharge of debts, the right to a discharge is not absolute, and some types of debts are not discharged. Moreover, a bankruptcy discharge does not extinguish a lien on property.
A Chapter 7 bankruptcy case begins filing a petition with the bankruptcy court where you reside. In addition to the petition, you must also file with the Bankruptcy Court: (1) schedules of assets and liabilities; (2) a schedule of current income and expenditures; (3) a statement of financial affairs; and (4) a schedule of executory contracts and unexpired leases.
You must also provide the assigned Chapter 7 Trustee with a copy of the tax return or transcripts for the most recent tax year as well as tax returns filed during the case (including tax returns for prior years that had not been filed when the case began). You must also file: a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling; evidence of payment from employers, if any, received 60 days before filing; a statement of monthly net income and any anticipated increase in income or expenses after filing; and a record of any interest you have in federal or state qualified education or tuition accounts. Married individuals may file a joint petition or individual petitions.
In order to complete the Official Bankruptcy Forms that make up the petition, statement of financial affairs, and schedules, you must provide the following information:
A list of all creditors and the amount and nature of their claims;
The source, amount, and frequency of the debtor’s income;
A list of all of the debtor’s property; and
A detailed list of the debtor’s monthly living expenses, i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc.
Married individuals must gather this information for their spouse regardless of whether they are filing a joint petition, separate individual petitions, or even if only one spouse is filing. In a situation where only one spouse files, the income and expenses of the non-filing spouse is required so that the court, the trustee and creditors can evaluate the household’s financial position.
Among the schedules that you will file is a schedule of “exempt” property. The Bankruptcy Code allows you to protect some property from the claims of creditors because it is exempt under federal bankruptcy law or under the laws of your home state. Many states have taken advantage of a provision in the Bankruptcy Code that permits each state to adopt its own exemption law in place of the federal exemptions. In other jurisdictions, the individual debtor has the option of choosing between a federal package of exemptions or the exemptions available under state law. Thus, whether certain property is exempt and may be kept by you is often a question of state law. We can assist you in determine the exemptions available in the state where you live.
Filing a petition under Chapter 7 “automatically stays” (stops) most collection actions against the debtor or the debtor’s property. But filing the petition does not stay certain types of actions, and the stay may be effective only for a short time in some situations. The stay arises by operation of law and requires no judicial action. As long as the stay is in effect, creditors generally may not initiate or continue lawsuits, wage garnishments, or even telephone calls demanding payments. The bankruptcy clerk gives notice of the bankruptcy case to all creditors whose names and addresses are provided by you.
Between 20 and 40 days after the petition is filed, the case trustee (described below) will hold a meeting of creditors. If the U.S. trustee or bankruptcy administrator schedules the meeting at a place that does not have regular U.S. trustee or bankruptcy administrator staffing, the meeting may be held no more than 60 days after the order for relief. During this meeting, the trustee will put you under oath, and both the trustee and creditors may ask questions. You will need to attend the meeting and answer questions regarding the debtor’s financial affairs and property. If a husband and wife have filed a joint petition, they both must attend the creditors’ meeting and answer questions. Within 10 days of the creditors’ meeting, the U.S. trustee will report to the court whether the case should be presumed to be an abuse.
It is important for you to cooperate with the trustee and to provide any financial records or documents that the trustee requests. The Bankruptcy Code requires the trustee to ask you questions at the meeting of creditors to ensure that you is aware of the potential consequences of seeking a discharge in bankruptcy such as the effect on credit history, the ability to file a petition under a different Chapter, the effect of receiving a discharge, and the effect of reaffirming a debt. Some trustees provide written information on these topics at or before the meeting to ensure that you are aware of this information. In order to preserve their independent judgment, Bankruptcy Judges are prohibited from attending the meeting of creditors.
In order to afford you complete relief, the Bankruptcy Code allows you to convert a Chapter 7 case to case under Chapter 11, 12 or 13 as long as you are eligible to be a debtor under the new Chapter. However, a condition of your voluntary conversion is that the case has not previously been converted to Chapter 7 from another Chapter. As a result you will not be permitted to convert the case repeatedly from one Chapter to another.
If you have already filed for Chapter 7 bankruptcy, the Bankruptcy Court will deny a discharge in a subsequent Chapter 7 case if you already received a discharge in your previous Chapter 7 or Chapter 11 case if it was filed within the last eight years. In simple terms, you can obtain a Chapter 7 bankruptcy discharge every eight years. The eight-year time period starts to run from the date your previous case was filed.
The bankruptcy court will also deny a Chapter 7 discharge if the debtor has previously received a discharge in a Chapter 12 or Chapter 13 case filed within the last six years unless you meet fairly strict requirements regarding the amount of debt you paid back in your Chapter 13 case. Similarly, a you are ineligible for a second discharge under Chapter 13 if you received a prior discharge in a Chapter 7, 11, or 12 case filed within four years of the current case or in a Chapter 13 case filed within two years of the current case.
If you need assistance reorganizing your finances and are considering filing for Chapter 7 bankruptcy protection we can help. We will take the time to understand your financial situation and determine if a personal bankruptcy is the best option for you. We are innovative in our approach and can help you overcome your financial challenges in these unprecedented times.
Somma Law PLLC is a Debt Relief Agency under federal law. We help people file for bankruptcy relief under the Bankruptcy Code.
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